(03) 9020 2905PORTFOLIO POINT: It’s not too late to get your final contributions into super for FY13. But make sure you don’t get caught on the tricky timing issue.
Knock, knock. Who’s there? June 30.
Oh, bummer.
Right, so with less than two weeks to go in this financial year, have you sorted out your super contributions?
It’s not too late, particularly if you’re self-employed and you have a SMSF. But there are things to watch out for (and I’ll come back to those).
However, if you’re a salaried employee, it’s all but too late to do much about this financial year. Sorry about that. Salary sacrifice needed to have been done before now, unless you’ve got an employer who is able to do a last-minute salary sacrifice deal and then send the contribution to your super account by 28 June.
And before I go any further, that’s a really important point to note. Super contributions are counted when they’re received by the super fund. It’s an annoying part of super contributions that is not well understood.
If you are paid monthly, but your superannuation guarantee (SG) and salary sacrifice contributions for the month of June don’t hit your super fund until July, then they count toward the FY13-14 year targets.
It doesn’t matter that your salary or SG payments were earned for the month of June. It matters when it goes in. If that’s July, then you’ve made a contribution for FY13-14, not FY12-13.
This can be particularly problematic for employees. Employers have obligations to pay their super either 28 days after either the end of the quarter, or the end of the month (for larger companies). So, you might earn all of your salary in June and even have salary sacrificed money in June, but if those contributions aren’t sent to the super fund until after 1 July … then you can see the potential issue.
It can also be a problem for those making extra contributions to their super funds. Bpay payments, for example, can often take two days to be received. However, even EFT transactions tend to be overnight transfers, so doing it on the last business day of the year might not work either.
For example, if you were to do a Bpay on 27 June (a Thursday) this year, it might not actually be received by your super fund until Monday 1 June. That could be a problem both for this financial year and next.
Be aware of that. If you need to, call your bank and call your super fund. If there are going to be several days of money floating in cyber-space, then you need to take that into account when making your contributions, or asking for your employer to make contributions.
Many big firms probably won’t pay your super on a day that doesn’t fit in with their payroll processing.
The self-employed
Working for yourself, as many of you know, has a number of advantages. One of them, in particular, is being able to time your super contributions to suit you.
While the first preference should always be to make monthly (or weekly or fortnightly) contributions, the fact is that most self-employed make their contributions in May and June.
And that’s often because they’re not paying themselves a salary, per se, and are taking trust distributions and they want to delay as long as possible making the contribution, as their performance for the year becomes clearer.
So long as those contributions hit your super account by 30 June, then you’re generally okay.
But there are a few things that you need to note, particularly as they related to 30 June 2013.
New concessional limits
As many of you would be aware for this year (if you’re not, see this column of 15/5/13), for one year and one year only, everyone has the same concessional contributions limit of $25,000.
For anyone aged over 60 who is eligible to make concessional contributions, then from 1 July, you get a new concessional contributions limit of $35,000 (government legislation pending, but it seems to have the support of both sides of the house, so it’s likely to get through).
For the self employed, this is fairly easy to monitor. But given when contributions are made (see above), it can be much harder for employees.
How much are you going to contribute this year? If you believe that you’re going to be able to contribute more next year – some people may know already that next year will be better, financially, than this year – then should you take the pain to contribute that little bit extra this year (potentially fully up to $25,000), knowing that you’ll be able to do $35,000 next year?
Contribution reserves
Another major benefit of a SMSF is the potential ability to use contributions reserves to allocate contributions when suitable.
The major benefit of reserves is that your business could get the tax deduction this financial year for your super contributions for both this year and next year. That is, you could potentially make contributions of up to $60,000 before 30 June ($25,000 for FY13 and $35,000 for FY14, if you’re over 60).
A contributions reserve could then be used to allocate the $25,000 for this year and then allocate the contribution for FY14 until after 1 July.
But be warned, there are steps that need to be followed. See this extended column (28/3/12) for what needs to be taken into account. The first point is that your SMSF trust deed needs to allow for contribution reserves to be made.
Don’t forget NCCs
And don’t forget your non-concessional contributions (NCCs).
Limits for NCCs are $150,000 a year, or $450,000 to cover three years if you are eligible to make contributions.
The same rules apply. It must hit your bank account before 30 June in order to count as a contribution for this financial year.
*****
The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.
Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E: bruce@castellanfinancial.com.au